Greece’s economic crisis is so profoundly deep that not even the American Great Depression of the 1920s could compare to it. Overshadowed by BREXIT and the infamous Cheeto-in-Chief, Donald Trump, the Greeks are back on the agenda. There have been few crises to match up to Greeks’s ongoing millennial screw-up. Greece’s creditors have, nevertheless, been increasingly unhelpful in resolving it.
Last Wednesday, German Chancellor Angela Merkel and the Head of the International Monetary Fund, Christine Lagarde, two of Europe’s most prominent creditors, met solely to the discuss the future of Greece’s economy.
Europe and the IMF have been at each other’s throats for months over whether or not the Greeks will ever be able to overcome their immense debts. This is the same dispute which hindered a Washington-based fund from signing up to a €86b dollar bail-out programme, crafted by Union leaders themselves, back in July 2015.
The IMF wants them to maintain a budget surplus of 3.5% from 2018 onwards. A few governments globally have managed this, so how is a country as insolvent as Greece meant to live up to this expectation? It can barely fend for itself with the country currently boasting a 26% unemployment rate.
The Greek government is bankrupt, and has been for the last decade. Greek creditors have managed the seven-year economic plunge for the sake of their own short-term gain and local politics. There has been no clear-cut attempt at resolution.
The Tsipras government, after its fervid proclamations to end austerity has played along and has somehow avoided the wrath of creditors for now. Indeed, in 2015, Prime Minister Alexis Tsipras had to opt for unpopular measures in order to get a third bailout from the Eurozone. Measures to streamline pensions, raise tax revenue, and attempts to liberalise the labour market were put forth and undeniably caused national uproar. This begs the question of how the Greeks are to react to the requirements brought on by the IMF.
The basics were summarised by the recent IMF Article IV report, and the data is disconcerting. The external debt as a share of GDP rose from 188.2% in 2011, to a projected 245.7% in 2016. This omnipresent situation has been accompanied by an almost continuous banking crisis and credit freeze in 2015. In turn, this was triggered by the freezing of European Central Bank emergency liquidity around the time of the Greeks’ bail-out referendum.
After Eurozone ministers had met up on Monday, European creditors have somewhat agreed with the IMF’s view. Lagarde emphasised that the Greeks need to implement sustainable income tax and pension reforms to qualify for the bailout being offered by the IMF.
The latest offer in bailouts is inevitably due to end in 2018. The “second leg” to restructure the Greek economy will nevertheless be that of tackling debt. The amount of debt needed to be organised is then decided by how much progress the Greeks have made by the end of the programme. It’s a long and strenuous process and so far, there seems to be no hope of the crisis ending any time soon.